Open offer's a test of nerves between buyer and seller

MUMBAI: Some recent open offers have become something of a war of nerves between the acquirer and other major shareholders, especially institutional investors, leaving the small shareholder flummoxed.

Holcim, S&P, Citigroup and Vedanta Resources are among the companies that have struggled to complete their open offers for acquiring majority stakes in ACC, Crisil, e-Serve International and Madras Aluminium (Malco), respectively.

The outcomes have varied. In some cases, such as e-Serve last year, institutional shareholders eventually tendered their shares to the acquirer, Citigroup. In the case of Crisil, the acquirer — S&P — seems to have blinked first, hiking its offer price. That open offer is still on. Holcim stuck to its open offer price of Rs 370 per share, and had to be satisfied with a shareholding well below its target level of 50.3%.

Holcim, through Ambuja Cement India, had intended to raise its stake in ACC to a controlling 50.2% by acquiring an additional 36.4% stake at Rs 370 a share. The foreign company, however, could acquire only 20% more, taking its stake close to 34% of ACC's equity capital.

Swiss cement major Holcim's open offer for ACC fell short of the target, as institutional shareholders tendered only part of their holdings in the offer.

Recently, global rating agency Standard & Poor's (S&P) raised its open offer price for Crisil from Rs 775 from Rs 680 per share. S&P, which had earlier made an offer for acquiring a 55.57% stake, has also increased the size of the offer to 65.57% of Crisil's equity. It intends to become a majority shareholder, with 75% of Crisil's voting capital. The offer opened on April 6 and will close on April 25.

FIIs will be playing a crucial role in the open offer, as they hold a large stake in the company. As on March 31 '05, FIIs collectively held a 25.5% stake, while the public held 25.9%.

Crisil shareholders, however, are in a dilemma over the fact that shares will be accepted only if S&P gets a controlling 51% stake, which is the minimum-response threshold.

If the threshold is not achieved, no shares tendered will be accepted, according to the conditional offer. Shareholders fear that if shares are not accepted, and if the price crashes post-offer, they will lose opportunity to exit at the current, relatively high, market price.

Last year, Mumbai-based BPO company e-Serve International had announced an offer with the intention to delist its shares from stock exchanges. The company had faced a problem in completing the offer, as its shares price had risen past the offer prices even before the opening of the offer.

Citigroup, which was holding 44% stake in e-Serve prior to the offer, announced on April 12 last year that it wanted to acquire all the outstanding shares in the company. Subsequent to the announcement, the share price started moving up amid speculation that institutional investors, who were holding a substantial stake in the company then, would not participate unless the offer price was hiked.

In August, Citigroup acquired 53 lakh shares out of non-promoter holding of 69 lakh shares by way of reverse book building at exit price of Rs 975 per share, and subsequently delisted e-Serve International from stock exchanges.

Though generalisations are hard to make, acquirers of people-intensive businesses, such as BPOs, may have an advantage, compared to a buyer of a manufacturing company. In the former, the acquirer can easily start a similar business if he does not succeed in the open offer.

Citigroup, for instance, could easily have started another BPO company. However, that's harder to do for a manufacturing company with lots of assets, such as ACC.

Vedanta Resources' open offer to acquire additional 20% in Malco failed as minority shareholders found the offer unattractive. Even though the exit price of Rs 240 per share was arrived at through the reverse book building route, this turned out to be way below the expectations of minority shareholders.

For example, Tamil Nadu Industrial Investment Corporation, which held 3.11% in Malco, had participated in the offer at Rs 2,091. That offer was, however, rejected by Vedanta.